Walcott v. United States

JANET L. WALCOTT, Plaintiff, v. UNITED STATES OF AMERICA, Defendant.

Civil Action No. 19-cv-00100-RM-KMT

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

February 12, 2020

RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

Magistrate Judge Kathleen M. Tafoya

Before the court is Defendant's "Motion to Dismiss." (["Motion"], Doc. No. 14.) Plaintiff has responded in opposition to the Motion, and Defendant has replied. (["Response"], Doc. No. 27; ["Reply"], Doc. No. 30.)

STATEMENT OF THE CASE

Plaintiff Janet L. Walcott brings this refund action against the Defendant United States of America, pursuant to 26 U.S.C. § 7422, seeking to recover alleged overpayments of her federal income taxes for the 2005, 2006, and 2007 tax years. (["Complaint"], Doc. No. 1.)

The following facts are taken from the Complaint. On April 19, 2008, Plaintiff filed a tax return with the Internal Revenue Service ["IRS"] for the 2005 tax year. (Id. at 2 ¶ 8.) Three weeks later, on May 12, 2008, the IRS filed a Substitute for a Tax Return, on behalf of Plaintiff, for the 2006 tax year. (Id. at 3 ¶ 17.) Plaintiff then filed a tax return, on November 24, 2008, for the 2007 tax year. (Id. at 4 ¶ 29.) The IRS thereafter commenced an audit of Plaintiffs' 2005-2007 returns and determined that all three returns were deficient. (Id. at 2-4 ¶¶ 8-9, 19-20, 30-31.) On September 6, 2010, the IRS assessed Plaintiff with additional taxes and penalties for the deficiencies, totaling $119,151.55, plus interest in the amount of $15,157.79. (Id. at 2-4 ¶¶ 10, 19, 32.)

Over the next six years, Plaintiff filed numerous amended tax returns and administrative claims for refund pertaining to the 2005-2007 tax years. (Id. at 2-4 ¶¶ 11, 21-23, 33-34.) Plaintiff also "gradually paid the entire balance due." (Id. at 2-4 ¶¶ 12, 24, 35.) The IRS eventually received all amounts owed by Plaintiff with respect to her delinquent 2005, 2006, and 2007 tax liabilities, including penalties and interest. (See id.) On October 7, 2014, the IRS reportedly released its final levy on Plaintiff's property. (Resp. 3.)

In the interim, on June 24, 2014, Plaintiff filed a lawsuit against the United States, pursuant to 26 U.S.C. § 6303, challenging the IRS's previous levy of her Colorado Public Employees' Retirement Association ["PERA"] funds. Complaint at 1, Walcott v. United States ["Walcott I"], No. 14-cv-1758-REB-KMT, 2015 WL 5462147 (D. Colo. Sept. 18, 2015). The Notice of Levy at issue, which was sent to PERA on February 29, 2012, sought to collect on Plaintiff's unpaid income taxes for the 2002-2007 tax years. Id. at 2. In Walcott I, Plaintiff argued, among other things, that the Notice of Levy was "self-voiding ab initio," because the IRS neglected to properly sign the document. Id. at 4. Plaintiff also argued that the IRS failed to provide her with adequate notice of deficiency prior to its collection of her PERA funds. Id. Plaintiff sought declaratory and injunctive relief, as well as a refund of all PERA funds levied bythe IRS. Id. at 4-5. The case was ultimately dismissed, on September 18, 2015, for lack of subject matter jurisdiction. Walcott I, 2015 WL 5462147 at *1-2.

Two and a half months later, on December 2, 2015, Plaintiff filed another lawsuit against the United States, once again seeking a refund of the money that the IRS levied from her PERA account, including funds used to satisfy her tax liabilities for the 2005-2007 tax years. Civil Complaint for Injunctive Relief and Refund at 1-3, Walcott v. USA ["Walcott II"], No. 15-cv-02630-MSK-STV, 2018 WL 5982142 (D. Colo. Nov. 13, 2018), aff'd 782 F. App'x 728 (10th Cir. 2019). In Walcott II, Plaintiff asserted three causes of action: (1) a refund of taxes collected by levy, pursuant to 26 U.S.C. § 6213(a), based on the IRS's alleged failure to provide adequate notice of deficiency; (2) damages for unauthorized collection under 26 U.S.C. § 7433; and (3) a return of surplus proceeds, pursuant to 26 U.S.C. § 6342(b). First Amended Complaint for Injunctive Relief, Refund, Return of Surplus Proceeds, and Damages at 1-4, Walcott II, 2018 WL 5982142 (No. 15-cv-02630-MSK-STV), ECF No. 5. Claims 2 and 3 were dismissed, on July 7, 2017, based on Plaintiff's failure to exhaust her administrative remedies. Walcott II, No. 15-cv-02630-MSK-STV, 2017 WL 2901712, at *6-7 (D. Colo. Jul. 7, 2017). Summary judgment was thereafter granted and affirmed by the Tenth Circuit, in favor of the United States, as to Plaintiff's remaining claim for a refund under § 6213. Walcott II, 782 F. App'x 728 at 735.

Two months after the dismissal of Walcott II, on January 10, 2019, Plaintiff filed this, her third, lawsuit against the United States. In her Complaint, Plaintiff now alleges that she is entitled to a refund under § 7422 for the payments that she previously made to the IRS to settle her federal income tax deficiencies for the years 2005-2007, because the IRS incorrectly adjusted her taxes. (Compl. 2-4 ¶¶ 14-15, 26-27, 37-38.) Plaintiff further alleges that she has met thejurisdictional requirements to bring a § 7422 refund claim, because prior to filing this lawsuit, she fully paid all amounts owed to the IRS for those tax periods and filed "various refund claims." (Id. at 2-4 ¶¶ 12-13, 24-25, 35-36.)

The United States now moves to dismiss the Complaint, in its entirety, pursuant to Federal Rule of Civil Procedure 12(b)(6). (Mot. 1.) Defendant argues, specifically, that Plaintiff's claims are barred by the doctrines of claim preclusion and claim splitting, because the claims at issue here are "part of the same transaction fully litigated" by the parties previously in Walcott II. (Id. at 2.)

STANDARD OF REVIEW

Federal Rule of Civil Procedure 12(b)(6) provides that a defendant may move to dismiss a claim for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). "The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted." Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003) (quotation marks omitted).

"A court reviewing the sufficiency of a complaint presumes all of plaintiff's factual allegations are true and construes them in the light most favorable to the plaintiff." Hall v. Bellmon, 935 F.2d 1106, 1109 (10th Cir. 1991). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Plausibility, in the context of a motion to dismiss, means that the plaintiff pleaded facts which allow "the court to draw the reasonable inference that the defendantis liable for the misconduct alleged." Id. The Iqbal evaluation requires two prongs of analysis. First, the court identifies "the allegations in the complaint that are not entitled to the assumption of truth," that is, those allegations which are legal conclusion, bare assertions, or merely conclusory. Id. at 679-81. Second, the Court considers the factual allegations "to determine if they plausibly suggest an entitlement to relief." Id. at 681. If the allegations state a plausible claim for relief, such claim survives the motion to dismiss. Id. at 679.

Notwithstanding, the court need not accept conclusory allegations without supporting factual averments. S. Disposal, Inc., v. Texas Waste, 161 F.3d 1259, 1262 (10th Cir. 1998). "[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S at 678. Moreover, "[a] pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.' Nor does the complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Id. (citation omitted). "Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of 'entitlement to relief.'" Id. (citation omitted).

In evaluating a Rule 12(b)(6) motion to dismiss, the court typically may not look beyond the pleadings. Casanova v. Ulibarri, 595 F.3d 1120, 1125 (10th Cir. 2010). "Pleadings," for purposes of a Rule 12(b)(6) motion, however, include attachments to the complaint, documents incorporated into the complaint by reference, and information subject to judicial notice. Tellabs, Inc, 551 U.S. at 322; Gee v. Pacheco, 627 F.3d 1178, 1186 (10th Cir. 2010); Tal v. Hogan, 453 F.3d 1244, 1264 n.24 (10th Cir. 2006). Documents attached to a motion to dismiss areconsidered part of the pleadings, if they are referred to in the complaint, and are central to the plaintiff's claims. GFF Corp. v. Assoc. Wholesale Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir. 1997).

ANALYSIS

The United States argues that the doctrine of claim preclusion bars Plaintiff from litigating her present claims in federal court. (Mot. 2.) Defendant argues, specifically, that because the district court in Walcott II entered a final decision on the merits regarding Plaintiff's entitlement to a refund under § 6213(a) for the same tax periods at issue here, her claims for a refund under § 7422 are precluded. (Id. at 4, 6.)

"The doctrine of res judicata, or claim preclusion, will prevent a party from litigating a legal claim that was or could have been the subject of a previously issued final judgment." Lenox MacLaren Surgical Corp. v. Medtronic, Inc., 847 F.3d 1221, 1239 (10th Cir. 2017) (brackets and internal quotation marks omitted). Claim preclusion has three elements: "(1) a final judgment on the merits in an earlier action; (2) identity of parties or...